Budget sees energy tax abolished

The Informer
Posted on: 22/03/2016

A reform of business energy taxes and funding for the next round of Contracts for Difference (CfD) auctions to support renewable generation were among the key measures Chancellor George Osborne announced in a budget he said aimed to put the “next generation first”.

The Carbon Reduction Commitment energy efficiency scheme is being abolished with effect from the end of 2018-19 as part of what the Chancellor described as the biggest-ever budget shake-up of energy taxes. The Climate Change Levy will rise from 2019 to make up the shortfall, a move criticised be renewable groups given its impact on generators.

The Chancellor also confirmed that £730m will be allocated to the next wave of CfD auctions for offshore wind and other less-established technologies. The funding will provide for up to 4GW of capacity.

Support for offshore wind will be capped initially at £105/MWh (in 2011-12 prices), falling to £85/MWh for projects commissioning by 2026.

The Carbon Price Support rate will also be frozen at £18 t/CO2 from 2016-17 to 2019-20.

At least £50m to accelerate smart power

In the wake of the National Infrastructure Commission’s report into the UK's future low-carbon energy system, the Government said it will allocate at least £50m for innovation in energy storage, demand-side response and other smart technologies over the next five years. The report had said a “smart power” revolution could save UK consumers £8 billion a year by 2030.

The Budget also saw measures introduced to try and provide some relief to the oil and gas sector amid continuing low prices. Petroleum Revenue Tax (PRT) is to be “effectively abolished”, having cut it last year from 50% to 35%.

The existing supplementary charge for oil companies will also be cut from 20% to 10%, backdated to 1 January.

‘Lack of visibility’

Maf Smith, Deputy Chief Executive of trade body RenewableUK, said the CfD budget was “tight” but that the industry was up for the challenge.“This budget shows that offshore wind will be cheaper than new nuclear power and competing with gas by 2025, making it even better value for money. The industry is playing its part continuing to drive down costs relentlessly.”

But the Renewable Energy Association (REA), warned that renewable energy generators would be affected by increases to the Climate Change Levy and said the Budget had failed to provide proper visibility around issues critical to the sector.

REA chief executive Dr Nina Skorupska.said: “This Budget could have increased investor confidence by making clear the funding available in all future Contracts for Difference pots, the funding available for each technology, the date of the next CfD auction, or outlined the future of the Levy Control Framework after 2021. The direction for this government is becoming increasing clear, with a huge tax cut for Oil and Gas with the most polluting industries continuing to be protected, but a tax raise for renewable generators through the now thoroughly misnamed Climate Change Levy.”

Richard Warren, senior energy policy adviser at trade group EEF, said that manufacturers would be "enormously pleased” to see the back of the CRC scheme.He described it as a “vastly overcomplicated tax that has had a negligible effect on energy efficiency improvements in industry".